About Piponomics

Economics plays a huge role in the foreign exchange market. I enjoy looking at economic trends and trying to see how it may affect currencies, and life in general. I will post my thoughts and observations here. I'm throwing macroeconomics, forex trading, pop culture, and everyday life into a pot and hopefully the final product are lessons about the FX market that's easy to understand.

4 Things to Remember When Trading the U.K. Jobs Report (Oct)

Heads up, pound traders! The upcoming U.K. jobs release could be a major catalyst for forex price action mid-week so make sure you take note of these things to remember when trading the report.

1. Market expectations

For the month of October, analysts are expecting to see a 1.6K increase in claimants, lower than the previous month’s 4.6K gain. Keep in mind that the U.K. claimant count measures the change in the number of people filing for unemployment benefits so a higher number ain’t too good for the U.K. economy.

Forex market watchers are also on the lookout for a potential pickup in wages, as the average earnings index or the three-month rolling average of salary changes is projected to rise from 3.0% to 3.2% for the period ending in September. Since this data point reflects changes in the amount of moolah that folks are able to put in their pockets or spend on various purchases, a stronger than expected reading is generally seen as a plus for consumer spending and inflation.

2. U.K. employment trends

The U.K. claimant count change has been missing expectations for the past four out of five months, which suggests that there could be a pretty good chance for a downside surprise. In addition, jobs growth has actually been weakening since the start of the year.

U.K. Claimaint Count Change (From TradingEconomics)

Meanwhile, the unemployment rate or the percentage of the total work force that is unemployed and actively looking for work has been showing a steady pace of improvement. In fact, the unemployment rate fell to its lowest level in seven years at 5.4% in September.

3. Current bias on the pound

Thanks to the disappointing turn of events in last week’s Super Thursday, the market appears to have an overall bearish bias on the British pound. Recall that BOE policymakers admitted that their outlook has considerably weakened over the past months, prompting them to downgrade their growth forecasts and predict that it might take much longer before any tightening moves are made.

With that, forex traders might shrug off any strong jobs figures, thinking that these won’t be enough to convince the BOE to shift back to its previous hawkish stance. On the other hand, weaker than expected data could trigger another wave lower for pound pairs since this would support the BOE’s downbeat vibes.

4. GBP/USD reaction to previous releases

Based on my observations, Cable seems to have shown a pattern in its reaction to the U.K. jobs report. Price typically consolidates in a tight box during the Asian trading session before making a strong breakout in a particular direction and sustaining that move throughout the London session.

GBP/USD 15-min Forex Chart (Oct. 14, 2015)

GBP/USD 15-min Forex Chart (Sept 16, 2015)

In the past two releases, GBP/USD had a bullish forex reaction to the release even if the actual claimant count change missed expectations. Traders appeared to focus more on the decline in the unemployment rate and the climb in the average earnings index instead.

Still, Cable managed to score roughly 150 pips in gains on both occasions, which suggests that this could be a good number to aim for when trying to hop in the immediate reaction to the report. Just make sure you practice proper risk management at all times!

How do you think the U.K. October employment data might turn out? Got any trade plans you’d like to share?